REwired

Opinion, commentary and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.

Costco [stock COST] [/stock], the one-stop-bulk-shop haven, offers everything you need in a home: furniture, flooring, groceries and 60-roll toilet paper packs. Now Costco is going to help you finance your home, too.

Contrary to your first reaction (which I assume was “Wait, seriously?”), getting a mortgage in what would otherwise be just an ordinary bulk food warehouse (Why, again, did I need 45 bananas?) is actually not that far-fetched.

Wal-Mart [stock WMT][/stock] started kicking around the idea of doing mortgages in 2007 and has since spread them throughout the U.S., Canada and Mexico. It has hinted at also moving the practice to the U.K., but overseas rival Tescoalready has a wholly owned banking franchise that can lend you money for just about anything.

Kroger [stock KR][/stock] has Kroger Personal Finance through a partnership with the Royal Bank of Scotland [stock RBS][/stock] that offers everything from mortgages to pet insurance and identity theft insurance.

In Canada, Loblaw Cos. Limited — the country’s largest food retailer — offers President’s Choice Financial, an almost completely automated service that provides most standard banking services, including mortgages. ICA Banken in Sweden does functionally the same thing and is run out of the retail chain ICA AB. It is estimated to have about 200,000 customers (one in every 47 Swedes).

So, if anything, Costco is a bit late to the ballgame.

And while grocery store banking is certainly convenient (car loan with your granola bar, anyone?) there are definitely some drawbacks. Namely, the complete lack of personal service. Costco’s mortgage services, like PCF’s, are almost totally automated. Customers go online to figure things out for themselves.

And while some of the banks that Costco uses will send representatives to visit their new customers, the customers still have to do — and presumably completely understand — most everything on their own. Which, if you hadn’t guessed, can lead to some boneheaded financial decisions.

For instance, in this article on CNN Money, a man chose the refinance his $170,000, 15-year fixed-rate mortgage carrying 4.25% interest to a 30-year mortgage at 4%. While he did decrease his monthly payments by about $500 a month, which I assume was the reason for the decision, I wonder if he knew he was going to be paying more than $60,000 more in interest over the life of his loan.

While the man would have paid about $62,000 in interest before, he is now paying over $125,000 in interest for that $170,000 mortgage. While he could feasibly refinance again into a shorter term, I wonder if he knows that.

Given the impersonal nature of automated loans, it's quite possible he doesn’t — even though, in his case, the bank came to his home to sign the paperwork.

That $125,000 could buy a heck of a lot of toilet paper at Costco. If you want me to be specific, and I’m sure you do, you could by 127,551 rolls of Cottonelle. And if this guy (who calculated his average usage per year) is right, then that’s enough toilet paper to last you about 2,600 years (On a side note, did you think you were going to get mortgage expressed in rolls of toilet paper today — or ever? I bet not!).

All of this to say, sometimes convenience cheats you out of a bit of financial security — even if you are saving a lot of money on dog food at the same time.

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Jessica was the resident HousingWire blogger and real estate reporter until the middle of August 2012, when she moved to New York City and a different career. She currently runs the blog Politically Inclined.

This month inHousingWire magazine

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Feature

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Commentary

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